Empty shelves become big news on investor sites

We've all heard the adages before and largely accepted them. That's what makes it so difficult for stores to address photos of out-of-stocks, racks in disarray and dirty aisles taken by analysts and others. After all, if jpeg after jpeg show a store in chaos, the images must also represent what consumers can expect in other locations.

Retailers including J.C. Penney, Kmart, Sears and Walmart have all been on the receiving end of this special type of photo criticism. In most of these cases, the person taking the photo has used it as further evidence of a chain being mismanaged.

Walmart, for example, has been taking hits for out-of-stocks going back more than a year. The reason behind empty shelves found in stores, notably reported by Bloomberg News, is that locations did not have sufficient staff to keep up with stocking responsibilities. It should be noted that Walmart has denied this explanation and maintained throughout that photographed locations were isolated examples, not representative of the chain as a whole.

A series of recent articles written by TheStreet columnist Rocco Pendola include photos that put some Sears and Walmart stores in a very unflattering light. Mr. Pendola received some criticism for his portrayal of the stores but is standing by his characterizations of the locations as messy and embarrassing. That, he maintains, goes to the management of the businesses overall.

Mr. Pendola specifically addressed retailers' rebuttals that the stores he photographed are out of the norm. To that he writes, "If your stores didn't look this way, guys like me would have nothing to relay to the public. A public, by the way, that often corroborates our reporting by sending us pictures from decrepit stores in areas where they live."

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How should retailers respond to stories posted online that contain photos of empty shelves and unkempt stores? Is the "isolated incident" defense viable in the minds of consumers?

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Instant Poll:

How effectively have retailers responded to stories posted online that contain photos of empty shelves and unkempt stores?

Comments:

I don't think anyone up in the corporate suite is surprised by these pictures. They know but it's probably not their direct department. They might make a call, a head will roll, but the underlying reasons are harder to manage. So you blame the messenger.

Is anyone surprised the stores they found to be lacking? Does anyone think the articles will shock any investor or C-level exec? Exactly.

Now imagine the good manager in the store wanting to make it right but not having the resources to change it so they, too, throw their hands up.

And that my friends is how entire store cultures are disempowered, resulting in more of the same. And then we have the story that "customers are all online" being proffered that it is "changing demographics."

If the answer is that it is an isolated incident, they should (a) say it is, (b) thank the photographer for bringing it to their attention, and (c) come down on the store manager. If it's not, they should wake up to the fact (hello Kmart) that most shoppers with money to spend don't want to shop in a dirty/messy/empty environment.

No matter how sophisticated we are as individuals, there is always that photographic nano-second in time that makes us look like a dork. The real test is whether or not the store usually looks like a mess with stock missing. If it does, here's an idea...stop whining and clean it up — stock the shelves. If customers can notice a mess, why can't store employees?

Here in AZ we have a store called AJ's where you'd swear no one has ever bought anything because the shelves, produce counters etc. are always pristine. Buy a can of soup and someone follows behind you to fill in the space. I've taken guests there just to see it.

Assuming the chain doesn't have an inventory problem that's widespread they can handle as isolated incident. The difficult thing is that to the consumer who shops that store, this is all they know of the company unless they have another store nearby.

From my own experience, I have 2 Targets within driving distance and one store is definitely run better than the other and you can feel it as a consumer - outs, messy shelves, etc. So I only shop at the better run store, but if I didn't have an alternative, I wouldn't shop at the chain.

If you are a retailer with 4,000 locations, every one is subject to local management's ability and if the 80/20 rules applies, you will have 800 stores with sub par managers.

How would your home look if 500 to 2,000 people walked through it each day, picked stuff up, tossed it down, etc? This element of the social space and photo sharing lacks the reality of what it really takes to run a large retail store 24/7 or 10/7.

We know that these incidents are messages relating to store pride, but a retailer cannot stop all the mess. They can re-start some of the good, store pride programs and that will help.

On shelf shortages - I talk to lots of store managers or associate managers in my area at the big retailers. I see a mess or shortage, I walk them to the shortage shelf. More than once they have been in shock. They make a few calls - and stock was brought out and the shelf was filled.

My real thoughts: Most non-retail shoppers with smart phones are just looking for a way to share a negative about anything. From car wreck pics to store appeal. This is the curse of the social networks and people that just have too much time to waste. They do not consider what their photo means to anyone, nor to they even think about the speed and reach of the web. They just seek attention and a way to get "likes" or views.

Retail is a tough business. Share thoughts with the managers of the stores you shop vs taking pics and posting them.

If management truly cares about images like these, they should investigate the situations and do what's necessary to change them. Out-of-stocks are frequent occurrences at Walmart and Target, while messy stores plague Sears and JCP. These aren't isolated instances. Don't attack the messengers, fix the problems.

This is a tough one. The "isolated incident" defense may be true, but that doesn't stop people from taking photographs. And this kind of pressure doesn't always just come from outside the company. I can't tell you how many times I've gone to retail board meetings and one of the board members talks about an experience "his wife had" of a) our prices are higher than so-and-so, b) the store looked messy, c) the signage was bad, and on and on.

Retailers report to us that they are under pressure from investors and shareholders to improve their return on inventory investment. It actually trumped out-of-stocks as a frequently cited business challenge in our merchandising benchmark last year. The only way to really solve that is way back in the planning systems. If you're managing Open-to-Buy at too high a level, you end up with empty shelves coupled with too much of other products.

Plus, when you're that low on an item like sugar, sales have to start deteriorating almost immediately, and analytics can easily identify the problem and send out alerts, etc. There's no real excuse for shelves looking like that.

Now, do I think that some retailers are cutting their payrolls too lean? Does the sun rise in the east? of course they are. But the problem looks worst when core technology to manage the problems are not in place.

I don't often say that technology can solve all problems. In this case, I think it can be a major help. It can certainly help prioritize store tasks and confirm that fast moving merchandise keeps moving.

Having said all of that, there are people who live to make life difficult for people and companies. You're never going to stop them, and any response will seem defensive. Each retailer has to decide which ones are noise and which ones are telling a true story.

For stores that skimp on in-store hours, the chickens are coming home to roost.

My last trip grocery shopping is a case in point. At 9:15 in the morning on a Saturday, the single checker worked hard to keep up, but the the line stretched back halfway to the back of the store. I left my cart and went to alert management, but was told that all available personnel were busy stocking instead.

The closing-stores trend shows no sign of abating, and retailers that can't execute are prime targets for irrelevance.

The best defense is a good offense, so the right answer is to have a zero tolerance policy on out-of-stocks and other forms of chaos.

I've often wondered why stores didn't use an out-of-stock shelf card, reading something like, "We're glad so many of you loved this product at this price point and we are cleaning the shelf to make room for more," or something to show that somebody knows the product needs to be restocked. It would show that somebody is minding the store and stop customers from asking if there is more of a product available. My bet is it would also get stores restocked faster.

But, short of that the zero tolerance policy is the best way to protect yourself from the kind of photos that accompany George's piece.

And, no, the isolated incident report is never credible -- in any circumstances.

There are at least two issues at play: First, the customer service problems caused by out-of-stocks or poor housekeeping. Second, the PR and "investor relations" ripple effects, whether a company considers this kind of reporting fair or not.

First things first: Fix the underlying causes of the problems, whether through store management or supply chain management. (And if these are chronic issues, admit it and tackle them.) The "gotcha" reporting should then take care of itself.

If the retailers depicted in the pictures and social media feel those images misrepresent them, they can take their own pictures and time stamp them. It's one thing to say this is not the norm and another to prove that it's not the norm.

And let's just say the retailer determines there is an out of stock problem or their shelves are not well maintained, it just might be in their best interest to rectify the problems rather than deny them.

The isolated incident defense only invites other people to take pictures, post them, and say, "see, it happened here ... and here ... and here ... and on this date ... and on this date." This is not a good line of defense.

"Thank you for letting us know which items needs restocking or what needs straightening up. We will fix this as soon as possible." That response will only be credible if someone does call the manager of that store and say fix it now. If someone acknowledges the problem and fixes it, consumers see the stores are responsive. If someone acknowledges the problem but does not fix it, then the store loses even more credibility.

These pictures should be viewed as an opportunity for a conversation with consumers.

Vigilante journalists and muckrakers want to take us down because we exploit the 99%, an uncivil society won't take the time to put the merchandise back in an orderly way, our employees start blogs claiming that retail sucks, and meanwhile the Internet companies come across as really cool places that care about everything that matters. An "isolated incident?"

As employers to a large base of struggling people, we are in a particularly difficult place. And then there are the times we come through during holidays and natural disasters. Like Tom says, stores get messy and sometimes we are out of stock — but look at all the good we do as retailers! Right?

Vahe Katros, Consultant, Plan B

1

All of the stores featured in those stories are retailers that have a skeleton crew labor model. They can't change unless they add labor, and that's not going to happen.

Consumers will have to accept these conditions as part of a trade-off of having low prices. For Walmart, it comes down to not having skilled and productive labor. For JC Penny, Kmart and Sears, their financial situation is so distressed they simply can't afford more labor.

Those kinds of pictures, along with those that poke fun at the demographic base that shops those stores will be more for entertainment value than alarming to the retailer. The pictures don't tell the retailer anything they don't know already.

David Livingston, Principal, DJL Research

7

Rather than blame the messenger, retailers must take these photographs to heart and improve their systems for tracking out of stocks and providing sufficient staff to maintain shelves.

Not only do these pictures suggest stores that are not well managed, but they also represent lost revenue that the company needs. Out of stocks are a tremendous issue in retail and represent billions of dollars of lost value.

These photographs demonstrate issues of inventory management as well as staffing and potentially culture issues. Retailers should take these issues seriously, and do their best to get on top of them quickly, rather than discount them and attempt to discredit the messenger.

Companies need to look at all complaints that they get as free consulting. If a customer complains about being out of stock or the store being messy, that is something they should be thanked for doing. They are giving you free consulting.

When a reporter does the same thing, why are the stores fighting them? Instead thank them for making management aware of the problem and then do something to fix it. Top level management cannot be in every store every day. They should be happy that others are helping them to be better.

Unless the retailer is pursuing a rifled-through, bargain-basement, grab-bag brand image and related shopping experience, there is no room for messy stores. And those are probably the exceptions. Retail is detail with many moving parts, but that is the price of being in the game. We ought to put on the hat of the shopper and take a critical view; their perceptions are their reality. This is the only way to improve.

So how does a store get that way? It could be a response to cash flow problems. These can cause inventory shortages and glaring holes on the shelves; or uninspired store associates may be slow to restock shelves; or maybe the stores' payroll budget has been slashed. In the former, some stores get higher replenishment or allocation priorities over others to serve the best locations (however defined).

Trouble is, the less attractive locations tend to be in economically depressed neighborhoods and that feeds the local reality of being an underserved community. And the impacted stores' associates are part of that same underserved community and reflect back how they perceive being treated (their reality).

On the other hand, any messy store is a symptom of operational ills at a retailer (operational discipline, aging systems, poor hiring, high turnover, no training, etc.). The more widespread the symptoms, the deeper the dysfunction. Headquarters should be thankful to get the real story that they weren't able to learn of on their own and drive them to do better. However, if they are not cash flow challenged and are already aware of these stores while not taking action, then this speaks to a basic business problem for the retailer and one of access to goods for the shoppers in the affected communities. What's worse, it challenges the current adopted universal principle of delivering consistent customer experiences and building loyal customer bases.

Like politics, all retail is local. Chains choose where to open stores and have the opportunity to serve and deliver consistently as long as they seek to remain in business, generate profit, and goodwill. Today, pictures, tweets and stories spread socially like wildfire with little wiggle room for error (intentional or not). Doing otherwise can quickly turn to not only embarrassing outcomes, but can lead to financial suicide.

Smart of investors to investigate instead of just reading company PR. If there aren't enough staff to push the product out and if there are missing size runs and nothing but "fill where you can" shenanigans, you can bet that vendors have cut them off and they have a major problem. Another good time to check is when it's rush hour and you watch the checkouts. How fast are they running and are many people buying? Stand in the line and see how much complaining is going on. How well are the registers running is indicative of whether they've been updated.

Kate Blake, Social Media Manager, Take Five with Kate Blake

3

I don't understand why Walmart continues to deny they have a stocking problem, yet the shelves remain low or out especially in the drug and cosmetics area. This is certainly not new. And I am not the only person who sees or complains about it. The Super Walmart I visit for toiletries is one where you can guarantee they will be low or out of stock on many items. We can complain all we want. But Walmart only answers to a higher authority.

How about a shelf sign? Everything has been sold. (It was all sold at full price. Our shareholder are ecstatic.) More great product will be here tomorrow? Nah...

There's an art to making a shelf or a fixture look full and attractive, whether there is 25% of the product available or 125% to be stocked. It's not that precise a level to hit and if a retailer can't get in around that stock level range, they have a bigger problem. Typically the product is available and just hasn't been put out, store labor hours being the culprit.

Once in a while there's a balancing act not being performed between managing labor expense to customer service levels. If you do the math, the extra labor vs. lost sales is an easy equation to justify adding labor.

The only way to respond to this or any criticism is honestly; pretending it isn't there or not a problem is a waste of time and really insults the intelligence of the shopper.Having said that, it really is a problem with an easy fix (order more) which seems so persistent it implies, at least at Walmart, management doesn't want to resolve it with fuller shelves and has another, higher priority agenda.

Andy Casey, Senior Partner, Loyalty Resources

1

Be open and honest. Admit that this is an area they must take care of and then take action to fix the problem. Most customers can tell when you are not telling the truth.

Tom Borg, Business Expert, Tom Borg Consulting, LLC

1

The economic model that stores, manufacturer partners and sales/marketing organizations work with is behind most of this problem. Everybody wants lean inventory, low prices, dubious promotions and "someone else" to do the work of stocking the shelves and ensuring planogram integrity. This lack of investment seems to produce just enough cash flow to meet benchmark numbers and (hopefully) please Wall Street and investors, but it can't produce clean, organized stores with good service levels. That's the only really credible response retailers could make when photos show out of stocks and dirty stores. But who's going to say that?

The "isolated incident" defense is actually true to a degree, since most stores aren't going to look this bad all the time. Using that defense, however, is just going to get you a lot of smirks and little more.

All retailers need to keep the shelving clean, stocked and in good working order (safety is #1). You pay for what you get as an employer. If employees neglect the cleanliness of the shelves, then zero sales will follow.

'SunnyAZ'

0

The thing that gets me about this slow-motion-train-wreck of a story is that executives act surprised about it. I mean, really? Are the folks at headquarters so isolated, so clueless about the conditions in their own stores?

Of course retailers need to focus on improving in-store implementation, which includes maintaining displays at the proper stock levels.

The kind of breakdowns depicted in the published photos have always occurred, however. The difference today is that the images have become a social media phenomenon. Messy shelf photos are damning evidence absent of explanation.

The first impulse of senior management will be to blame people at the store-level, while disassociating the problem from its root causes: Poor ordering/replenishment practices; irrational focus on squeezing down employee hours; absence of a plan-do-measure planogram compliance discipline.

The second impulse will be to wallpaper over the problem with public relations claims that the few images are isolated instances. Publishing images of pristine, beautiful displays on blogs and Facebook pages may help balance the message, but nobody who as ever shopped will be really fooled.

The only store in a chain that always looks good is the one closest to headquarters. For over 20 years consumers have said clean store is the number one reason for selecting a supermarket to shop. In this day and age, there is simply no reason for a dirty store. The number of times the shelves are out-of-stock and merchandise is sitting in the back room is rare and mostly due to supervision not doing their job. Poor ordering at the store and distribution are the most common contributors.

Consumers do not like out-of-stocks, especially when they travel to a store to purchase a specific item. This one factor was a major contributor for Bradlees' failure. Consumers simply quit shopping the store with out-of-stocks. This is another reason some retailers do day stocking just to show the consumer new merchandise is always arriving.

Retailers should quit wasting their time explaining; rather spend the time to fix the problem. The odds that an analyst identified the issue in a store picked at random, and the issue does not exist anywhere else are low.

Just-in-time planning and allocation works well when sales keep pace with financial volumes that support daily, full truck load replenishment shipments. With store volumes off from a poor economy and e-commerce pressures, the brick & mortar retailers are getting a resounding negative feedback from the consumer. This is no small problem that is being additionally weighed down by climbing fuel costs that many times disallow less than truck load deliveries.

We all know that the number of complaints are minuscule when compared to the number of abandoned carts and lower store visit counts. The economy is forcing supply price increases that are falsely reported as inflation. The number of store closings and corporate downsizings and failures are not leveling off remaining store sales numbers. On the contrary, they are falling at the same pace. With these these facts in place for 6+ years the time to rethink distribution and logistics is long overdue.

I own the opinion that reducing the sales floor footprint of a store while increasing storage and or warehouse room is a practical approach. At the same time, a drastic reduction in the size and use of distribution centers should be placed very high in the strategic corporate goals list. Direct shipments from the manufacturer supplying from a build to order manufacturing process may come back in fashion soon, especially in the staple products side of retail. Regardless of the processes and methods used, it would be well advised for retailers to look at market demand as the sole reason to buy any and all product.

As for the speculative portion of retail as in electronics, fashion, and the like, more of the burden of ownership and markdowns should be shared by the manufacturer.

'gjarnoldjr'

1

How should they respond? Fix them! That is the retailers' job - and it is reflective of a lack of capability or understanding that such laxness at store level is allowed. Being in the retail services industry, these photos reflect today's reality, not exceptions. Retailers as a generality do not do a good job at shelf level. And as a consumer, I walk out the door when I am confronted with empty shelves. Online is never (or hardly ever) empty, so retailers, get busy.